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Abu Dhabi, UAETuesday 11 December 2018

Saudi Arabia PMI drops to record low as private sector orders fall

Business optimism, however remains above 12-month average, survey shows

Saudi Arabia PMI dips in March as VAT dampens demand.  Tasneem Alsultan / Bloomberg
Saudi Arabia PMI dips in March as VAT dampens demand. Tasneem Alsultan / Bloomberg

A gauge of private sector growth in Saudi Arabia fell to a record low in March due to a drop in new orders after VAT was implemented in January and employment stalled, completing the weakest quarter since the survey began in August 2009.

But at the same time the Purchasing Managers’ Index found that business optimism among purchasing executives was above the 12-month average, output growth picked up and the pace of input cost inflation abated from a high seen at the beginning of 2016.

Emirates NBD’s Saudi PMI survey slipped to 52.8 in March from 53.2 in February. A reading above 50 in the PMI suggests the non-oil economy is growing, while a reading below 50 suggests a contraction. The survey is sponsored by Dubai-based lender Emirates NBD and produced by IHS Market.

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“The fall in the pace of expansion in Saudi Arabia’s non-oil private sector to its lowest levels on record last month will prompt firms to continue price discounting in a bid to galvanize demand; output prices were below the neutral 50.0 level which delineates contraction and expansion for the second month running in March,” Daniel Richards, Middle East and North Africa economist at Emirates NBD, said.

Saudi Arabia, the world's biggest oil exporter, is introducing taxes and implementing other reforms to shore up government revenue hurt by the oil slump that started in 2014. The kingdom introduced excise tax last year and 5 per cent VAT this year as part of these measures.

When it came to new business, the PMI report said anecdotal evidence suggested that the introduction of VAT dampened demand amid competitive pressures. At the same time, foreign demand dipped for the second straight month.